Russian Third-Quarter GDP Grew at Slowest Since 2010 Rebound

Nov. 12 (Bloomberg) -- Russia’s economy expanded in the third quarter at the slowest pace since it began recovering at the start of 2010 as a drought hurt agricultural output and stuttering global growth curbed demand for commodities exports.

Gross domestic product rose 2.9 percent last quarter compared with the same period a year earlier, the Federal Statistics Service in Moscow said today in an e-mailed statement. That exceeded a 2.8 percent median forecast of 15 economists in a Bloomberg survey, which was also the level of growth estimated by the Economy Ministry last month.

The weakening economy presents a challenge to President Vladimir Putin, who returned in May for a third term in the Kremlin promising to create 25 million new jobs and boost investment. Droughts ravaged crops across southern and central Russia this year, while slowing growth in China and a slump in Europe curbed demand for shipments of oil, gas and metals.

“We expect a further slowdown, with growth dependent on consumption, and assuming there are no external shocks,” Dmitry Polevoy, chief economist at ING Groep NV in Moscow, said by phone. “The downturn came as a result of slowing private consumption and investment.”

Russia’s Micex Index of 30 stocks kept gains after the report, trading up 0.3 percent at 1,405.33 as of 4:01 p.m. Moscow. The ruble was little changed against the dollar at 31.6220.

Lowest Valuation

The ruble-denominated benchmark gauge trades at 5.4 times estimated earnings after failing to advance this year. That compares with a multiple of 10 times for the MSCI Emerging Markets Index, which has added 8.2 percent. Russian equities have the lowest valuations based on estimated earnings among 21 emerging markets tracked by Bloomberg.

“The main reason for the slowdown is obviously agriculture, as the harvest has been worse this year,” Vladimir Tikhomirov, chief economist at Otkritie Capital in Moscow, said before the release. “The second point is a certain deceleration in industry, and more so in mining than in manufacturing.”

Agricultural output fell 7.7 percent in September from a year earlier and 3.8 percent in August, the Economy Ministry said on its website Nov. 9. Russia, the world’s third-biggest wheat exporter last season, has harvested 24 percent less grains this year, the Agriculture Ministry said Nov. 7.

European Slump

The European Union accounts for about half of all Russian trade in goods. The euro area’s economy contracted 0.4 percent in the second quarter from a year earlier after stagnating in the first three months of the year.

China’s share in Russian trade rose to 10.6 percent in September from 10.1 percent a year earlier, according to Russian customs data compiled by Bloomberg. The country’s economy grew 7.4 percent in the third quarter, the slowest pace in three years.

Raw materials represent 80 percent of all Russian exports, with oil and gas alone accounting for 60 percent to 65 percent, according to BNP Paribas SA.

Prices for Urals crude, Russia’s main oil export blend, are little changed this year, after a 17 percent increase in 2011. It traded down 0.7 percent at $107.51 a barrel today.

“Although oil prices are favorable for Russia, the economic slowdown is likely to continue,” Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow, said by e-mail. “A poor harvest of 2012 and the base effect may affect growth and reduce the usual rebound typical for the fourth quarter.”

Business and state spending to expand output has slumped, with investment unexpectedly shrinking 1.3 percent in September from a year earlier, the first decline in 18 months, according to the Federal Statistics Service. Economists project another a drop of 0.9 percent in October, according to the median of 14 estimates in a Bloomberg survey.

Putin ordered the government in May to boost investment to account for one-quarter of GDP by 2015, and to 27 percent by 2018, from 21 percent last year.

APEC, Sochi

“Big projects played some role in the investment slowdown, including preparations for the Asia-Pacific Economic Cooperation summit, Nord Stream construction, and work ahead of the 2014 Olympic Games,” said Maxim Oreshkin, chief economist at VTB Capital in Moscow. “While preparations for the Olympics continue, the investment volumes are starting to drop.”

Russia’s central bank left interest rates unchanged Nov. 9 after a surprise increase in September, saying that the economy’s expansion has continued to cool in recent months. Chairman Sergey Ignatiev is trying to rein in price growth that forced policy makers to abandon their target for this year and lower expectations for next year’s range.

“We no longer expect any further modifications to policy rates this year,” Clemens Grafe, chief economist at Goldman Sachs Group Inc., said in an e-mailed note. “The economy is running at close to potential output, and improving PMIs and strong bond issuance suggest that economic growth is likely to accelerate in coming months.”